Read the original proposal on Discourse

For the proposal to pass, 20% of quorum and >67% FOR votes are needed.

TL;DR

• The launch of Bancor V3 and maintaining pool competitiveness justify an extension on the LM rewards for the LINK pool for the next 12 weeks. The proposal 28 to extend them will most likely fail.

• The community was largely surprised by the failure of this proposal (and other large LM extensions) and there is reason to believe that this proposal may pass if pushed again.

• It is not feasible to change the duration or amount of LM rewards due to contract complexity. Further, if LM rewards end on a pool, it is very difficult to restart them.

• If these pools are going to be renewed, it must happen immediately.

• Bancor V3 has been announced and is likely to launch within the 12 week period that these LM rewards would be extended.

• Cutting LM on these pools now is a huge change made without knowing the effects of V3.

• It is bad business and user experience to make multiple large scale changes to the platform in a short period of time. It is smarter to wait for V3 then reassess.

• The effects of LM rewards on inflation have been overstated and the protocol can clearly gain ground in TVL and volume while they are active.

Justification

Renewed Interest in Bancor Governance

The proposal to renew liquidity mining rewards for the LINK/BNT pool is being resubmitted over concerns that the DAO’s voting power has become significantly centralised, with the top wallets holding a considerable % of the quorum, whilst more than two-thirds of the total vBNT is unstaked and could be voting on Snapshot.

• Total Unstaked vBNT: 48,590,025

• Unstaked vBNT not in Vortex: 46,634,361

• Total vBNT staked for Governance: 13,827,950

• Only 22.2% of total vBNT is staked for Governance.

Top two vBNT addresses own 15.9% and 11.2% of quorum, respectively, at a total of 27.1%.

We have seen, through massively increased activity on Twitter, Discord, and Telegram, that there is significant public concern about LINK/wBTC/stablecoin LM rewards failing to pass. The Bancor community was lax and the failure of these proposals caught them by surprise. We have seen a large amount (1.5m and counting) of vBNT stakes in governance since they failed. It is clear that the community wants to vote on this proposal again and there’s reason to believe this proposal might pass now.

Contract Complexity Means We Must Act Now

• Due to the design of the liquidity mining contracts, it is very difficult, bordering on impossible, to change the amount or duration of LM rewards once they have been assigned to a pool.

• For this reason, we have an all-or-nothing decision in front of us even though it may be more desirable to choose some middle ground.

• Due to the design of the contracts, it is very difficult to reinstate LM rewards once they have lapsed. The YFI pool, for example, had LM rewards renewed a month ago which are still not active due to the heavy lifting required by the Bancor team.

• This means that if we do not renew these LM rewards immediately, we will not get them back for weeks and perhaps ever once V3 launches.

• This decision is urgent and requires an appropriate amount of our attention.

Bancor V3, Business Positioning and Pool Competitiveness

According to Bancor’s team recent announcement:

• Bancor V3 will be Bancor’s largest and most significant upgrade to the protocol.

• V3 incorporates community feedback in the past 8 months since v2.1 went live and leverages a brand new discovery in the core AMM design that will dramatically improve the protocol’s capital efficiency while reducing friction and costs for users.

• V3 unlocks a new way for passive LPs to earn even higher yields on their staked capital while being fully protected against IL. Just set, forget and earn high APRs, with no risk of IL.

• The new design will encourage more liquidity to flow into the protocol, and vastly more volume to be processed, driving sustainably high yields for Bancor LPs, and allowing the protocol to collect more revenue.

• V3 lays the foundation for Bancor to capture a much larger share of total crypto liquidity and trading revenue.

Bancor is on the cusp of V3. Every indication that we have says that this new version will be a massive change to the ecosystem. Meanwhile, we have seen the protocol continue to build TVL, trading volume, and general momentum on the back of LM rewards.

Removing LM rewards at this time is highly disruptive and flies in the face of every principal of change management. It is a change made without understanding what V3 will bring and will put Bancor’s users through two significant disruptions in a short period of time. Total protocol changes like V3 should be made during periods of stability, not during the turmoil that would occur in this case.

Some comments:

1. The protocol is still in a growth phase, both in TVL but especially in volume (Figure 1), since Bancor v2.1 was released.

2. LINK pool has seen an average APR of 1.76% (past 60 days), gathering $1,133,448.47 worth of fees in the past 30 days (Figure 2). To remain competitive with other protocols, LM rewards are necessary to incentivise LINK liquidity to remain staked before Bancor v3 arrives.

Figure 1. Bancor monthly volume. May 2021 data doesn’t include the last 3 days of the month.

Figure 2. Bancor LINK/BNT pool daily APR.

Liquidity Mining Rewards and their Impact on Inflation

1. At this stage, LM rewards on these primary pools (ETH, wBTC, LINK, stablecoins) are allowing Bancor to stay competitive and exceed the yields offered by competitors. Swap APYs, as they exist now, are probably not enough to draw the depth of liquidity we need.

2. 7,894,347 BNT LM rewards have been claimed from 2,557 unique addresses. Given a total current BNT supply of 204,096,941 (supply is elastic), these represent 3.87% of total supply.

3. 20,909,923 BNT LM rewards have been re-staked from 2,095 unique addresses, far outweighing the claimed BNT.

4. A large majority of the LM rewards are re-staked to the protocol, increasing the TVL and the space available for TKN deposits with single sided exposure. If this trend continues, the LM program is more of an asset than a liability, and can be managed more assertively.

5. Inflation is a complex phenomenon and simply increasing the amount of BNT tokens does not necessarily lead to inflation. And, regardless of the amount of inflation that is occurring, we don’t have enough information to say that our increased TVL, decreased slippage, and attractiveness to aggregators is not worth that inflation.

Conclusions/Comments

Continue reading on Discourse